A Rebound In Oil Drilling Is Unlikely

Oil pump at sunsetIn 2016, it’s forecasted that oil output in the U.S., which includes production from the Gulf of Mexico and Alaska, will come out to 8.60 million barrels per day. This implies a year-over-year decline of 830 thousand barrels per day from 2015’s 9.43 million barrels per day and is, by itself, a net positive for the oil market. Part of this drop will be driven by lower output in Alaska but most of it will be driven by falling production in the Lower 48 states.

At this moment, oil seems to be moving gradually higher and much of this is driven by the fact that fundamentals are improving in many (but not all) key areas. One thing holding oil back appears to be the fear that an increase in prices will cause the glut to continue growing as opposed to shrinking but, as we’ve already discussed, data suggests that output in the U.S. cannot rise materially and will likely fall as current prices are not enough to prop up rig activity.

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